The problem with Blockchain

Bitcoin was the cool kid on the financial services block not so long ago. Despite being thrown back into the media spotlight recently, with entrepreneur Craig Wright claiming the digital currency is his brainchild, Bitcoin had lost appeal long before this. It is essentially an un-regulated currency that goes against all Know-Your-Customer (KYC) and Anti-Money-Laundering (AML) principles.

[easy-tweet tweet=”The industry has now turned its attentions to the technology that underpins #Bitcoin: #Blockchain” hashtags=”FinTech”]

The industry has now turned its attentions to the technology that underpins Bitcoin: Blockchain. It has been hailed as holding the key to reinventing the face of finance, and recently, we’ve seen four major banks test Blockchain for credit default swaps, Deutsche Bank enter discussions with a London Innovation Lab for the technology, and RBS plan to pilot a product based around this new phenomenon.

It’s no secret that there has been a ton of VC money invested into Blockchain in recent years, and we’ve seen a whole host of start-ups emerge that are focused on its progression. Blockchain company R3 is now looking to raise a staggering $200 million in funding. However, it seems as though one key question has been overlooked amid this industry buzz – does Blockchain actually offer anything to the end-customer that could not be achieved with existing technology?

Where does the customer fit in?

Some argue that within the remittance space, the technology could help to facilitate global and instant payments in mere seconds, and at an extremely low cost. With these two features, it would serve as a better alternative to traditional channels such as SWIFT or ACH.

Whilst this may be true, it is only the case because banks have under-invested in global payment networks for far too long. In reality, being able to send $10 from New York to Sydney within seconds could have been achieved much earlier without the requirement of Blockchain if only banks had addressed the issue as the problem arose. However because they had all of the power in the finance sector, a lack of competition meant that they had no real need to innovate, and there was no financial incentive to invest in payment networks while profits on cross-border payments were so high.

One area that could massively benefit from Blockchain is in settlement. The opportunity to overhaul outdated legacy systems that are slow and inefficient is massive. However, settlement is little other than a back end process that offers very little to the end customer. What matters to the consumer is being able to access finance options that suit them, and that make their lives easier. They want to be able to bank from their mobile with ease, and access a range of financial services that help to enhance their life, all at a good price. Blockchain simply doesn’t achieve this.

Exploring the excitement

Blockchain initiatives, like many other FinTech solutions, are encouraging change within the incumbents and this is undoubtedly one of FinTech’s greatest achievements. With a constant stream of media attention around Blockchain, the concern that it could truly disrupt the financial sector has prompted banks to take action and look into what they could gain from this technology. Whilst a complete transformation of the industry may not be a realistic expectation, banks have had no choice but to investigate the possibilities.

The potential

Overhauling outdated legacy settlement technology is a key area where Blockchain has the potential to shine. It is a massive industry with millions exchanged daily, and the companies that are able to build these technologies could well be worth billions in the future. However, it is all about the end-user, and a proposition that only brings little value to the consumer cannot feasibly be dubbed as transforming financial services as a whole.

If a solution is to truly disrupt the industry, the complete user experience needs to be re-built. Only when solutions are created that bring full transparency to the market, change the channels that consumers interact with to buy financial products, or offer completely new products, will the industry see real change.

A key example is JP Morgan. A consumer wouldn’t choose to use their services because of the technology they use to settle transactions, but rather they would choose them because they have a trustworthy reputation.

There’s little doubt Blockchain will continue to gain media headlines, and in some senses, for all of the right reasons, for example, transforming some niche banking sectors. However, it is vital to keep in mind that whilst it may be able to improve some areas, banks will have to rethink their customer offering if they are to truly reinvent themselves.

Philippe Gelis, CEO and Co-Founder of Kantox
Philippe began his career working for Renault Suisse as a financial controller. He then gained invaluable experience in the banking industry as a consultant. Before he found Kantox he was strategy & management consultant at Deloitte. He is specialised in corporate finance and business strategy. Philippe has a masters in business strategy and an MBA corporate finance, both from Toulouse Business School.